Engineering Economic Analysis

I

542 ACCOUNTING AND ENGINEERINGECONOMY

FIGURE 18-2 Sample balance sheet.

within that category in order of decreasing liquidity are listed cash, receivables, securities,

and inventories.Fixed assets,orproperty, plant, and equipment,are used to produce and

deliver goods and/or services, and they are not intended for sale. Lastly, items su~h as

prepayments and intangibles such as patents are listed...

The term "receivables" comes from the manner of handling billing and payment for

most business sales. Rather than requesting immediate payment for every transaction by

check or credit card, most businesses record each transaction and then once a month a bill

for all transactions. The total that has been billed less payments already received is called

accounts receivable, or receivables.

Liabilities

On the balance sheet, liabilities are divided into two major classifications-short term and

long term. Theshort-termorcurrent liabilitiesare expenses, notes, and other payable ac-

counts that are due within one year from the balance sheet date.Long-term liabilitiesinclude

mortgages, bonds, and loans with later due dates. For Engineered Industries in Figure 18-2,

total current and long-term liabilities are $2,180,000 and $1,200,000, respectively.Often in

performing engineering economic analyses, the working capital for a project must be esti-

mated. The total amount of working capital.availablemay be calculatedusing Equation 18-2

as the difference between current assets and current liabilities.

Working capital=Current assets- Current liabilities (18-2)

BalanceSheetfor EngineeredIndustries,December31, 2004 (all amountsin $1OOOs)-

Assets liabilities

Cun-ent assets Cun-entliabilities

Cash (^1940) Accounts payable 1150
Accounts receivable (^950) Notes payable 80
Securities 4100
Inventories (^1860) Accrued expense

• 950
  (minus)Bad debt provision --80 Totalcun-entliabilities 2i8O
  Total cun-ent assets 8770
  Long-term liabilities 1200
  Fixed assets
  Land 335
  Plant and equipment^6500
  (minus)Accumulateddepr. - 2350-

Total fixed assets (^4485) Equity
Preferred stock 110
Other assets Common stock 650
Prepays/deferredcharges^140 Capital surplus^930
Intangibles^420 - Retained earnings - 8745
Total other assets (^560) Total equity 10,435
Total assets 13,815 Total liabilities and equity 13,815